Flexible spending account (FSA) transactions are in high gear as patients seek to spend any remaining funds before year’s end. But it appears that the transactions are being unfairly denied at many independent community pharmacies as the negative fallout from confusing Internal Revenue Service (IRS) guidance continues.
Since July 1, an IRS regulation has required that pharmacies use an expensive inventory information approval system (IIAS) to process FSA debit card transactions. It’s cost-prohibitive for some independent pharmacies, so an exemption, known as the “90% rule”, was included for pharmacies whose sales are comprised of at least 90 percent prescription drugs and other qualifying medical supplies.
However, many health insurance plan administrators have refused to honor the 90 percent rule. That leaves community pharmacies having to refer loyal customers to Big Box rivals to use their FSA debit cards.
NCPA has met with IRS, Treasury Department, and Small Business Administration officials, proposing that the feds help restore a level playing field for FSA purchases. Existing guidance should be clarified or new guidance issued stating that the agency:
- Considers purchases from 90% rule pharmacies substantiated in the same way IIAS-compliant purchases are substantiated, which means that all purchases are automatically substantiated and no further documentation is required; and
- Agrees that, in the event of an IRS audit, electronic records tracing the merchant code back to 90% rule pharmacies registered with SIGIS are sufficient to meet the burden of proof and show that the purchases are completely substantiated.
On Monday, U.S. Senator Mary Landrieu, D-La., stepped in. She heads the Senate Committee on Small Business and Entrepreneurship and wrote to the IRS, asking them to clarify “under what circumstances the IRS considers qualified medical purchases by consumers from ’90 Percent Rule’ Pharmacies using FSA debit cards as substantiated under the current applicable guidance.”
The Senator’s letter follows an NCPA missive to the Small Business Administration’s ombudsman, who flagged the issue for the IRS. The hope is that such guidance could lead health plan administrators and employers to soften their inflexible approach and allow patients to shop at their community pharmacy of choice.
It remains uncertain what action the IRS takes and how plan administrators and employers respond. Regardless, NCPA will continue seeking congressional allies and urging the IRS to take these modest steps to provide some relief without undermining the purpose of the regulation.